Find out if your Company is a Striver, Best Practice Seeker or Innovator

This informative report analyzes the technology plans and budgets of more than 200 enterprises, and provides specific recommendations for companies seeking to adopt industry best practices and supporting supply chain technologies, and those looking to create innovative supply chain management solutions. The Aberdeen Group is one of the industry’s leading research organizations and this report is a must-have for companies seeking to “reality check” their own supply chain plans.

I still remain of somewhat mixed minds when it comes to offshoring, outsourcing, domestic manufacturing, etc.

For many this is obviously both a business and an emotional issue, which is why it makes it so tough. From the rants of Lou Dobbs of CNN about “traitor CEOs” and “exporting America” to politicians of all sorts, the anti-Wal-Mart crowd, and many others, this issue isn’t going away any time soon. With the changing political winds now in Washington, it in fact is likely to pick up steam.

Part of the reason I am somewhat mentally divided on the issue is that I just talk to so many companies that just have not achieved the level of expected savings from offshoring initiatives. Is that because the potential savings have just been overestimated, meaning not all the costs of logistics, inventory, overhead, etc. were correctly factored in, or due to a failure in the actual execution. A little of both, it often seems.

Early on in SCDigest, I wrote on how electronics maker Viasystems basically was saved from going under by an aggressive move to Asian manufacturing. More recently, in our popular piece on “Supply Chain 2006 – A Case Study” I also wrote about a consumer durables company that told me they were basically forced to go offshore by the unrelenting price demands of some big box retailers, who were in part using their own private label brands and pricing strategies for offshore knock-offs as part of the bargain. The company claimed at least that despite having gone almost totally “lean” that it just couldn’t meet the price targets domestically.

So it was with interest I read the recent Wall Street Journal series on “Still Made in the USA.” It sequentially featured four separate companies or industries, which I’ll summarize below.

Example 1 - Zimmer, and the large concentration of other medical device manufacturers in Warsaw, IN: Offshore competition is limited by concerns about liability, and the industry enjoys sky high gross profit margins with domestic production. A supportive ecosystem of suppliers has developed around the area, often for non-commodity goods like clean room style packaging.

Example 2 – Bobcat: This division of Ingersoll Rand is still the world leader in small loading equipment, operating primarily out of factories in North Dakota and exporting $550 million worth of equipment and parts per year. It thrives in part by supplying repair parts very rapidly, which it believes would be difficult to do given the number of such parts with a long, offshore supply chain. Company executives also believe strongly in the collaborative power of having marketing, engineering and production in close proximity, and all of those in close touch with its customers. Bobcat does have a factory in Eastern Europe for that market, and a developing joint venture with a Chinese manufacturer.

Example 3 – Viking, producer of high end kitchen ranges and other appliances: It operates out of factories in the Mississippi Delta, and has enjoyed strong growth. It has the advantage of being a premium brand, with high price points, which enable it to absorb comparatively high manufacturing costs (relative to other appliance manufacturers, many of which have move to Mexico and now China). That said, the company also succeeds by a complete make-to-order model, which reduces many supply chain costs, and also allow it to meet very niche or customer specific needs, such as a kitchen range in an unusual color.

Example 4- Schantz Organ: Probably the least interesting example of the bunch, just because the product – high end organs for churches and other markets – is so unusual, and requires very skilled craftsmanship from its production team members. Nonetheless, the company does some smart things too, such as having production employees responsible for their own QA at each step to reduce costs.

So, are there any real overall insights here, and lessons for the supply chain? The obvious one, of course, is that these examples all represent higher end, higher price product areas. No surprise there, and many of these companies themselves do go offshore for commodity supply items. But I offer a few other thoughts:

There is a common thread of being in relatively rural locations, but generally still close to major highways and transportation systems. The article notes the challenges of production closer to urban areas, with their high taxes, high energy costs, and generally higher labor costs. It’s no secret that’s also where the Japanese automakers, with great success, have set up factories here. Bobcat, for example, also believes the farm roots of many of its workers contributes to a “get it done,” problem-solving mindset of its employees.

Relatively collaborative worker relationships: Bobcat, for example, is unionized, but the relationship seems to be a positive one overall. Workers do seem to be valued, and management itself is generally strongly oriented to keeping the work at home. When the decisions are made more remotely, both physically and mentally, it makes the choice to offshore much easier.

Look to improve internally first before offshoring? Many observers often note that companies looking to outsource say distribution often do it by comparing current costs to outsourced costs, not to what is achievable through improvement internally. I think the same is sometimes true with manufacturing offshoring. Offshoring provides the easier answer than internal improvement.

The power of brand and channel control: There’s no easy answer to this one, and it can’t work for everyone, but brand building and maintaining some level of channel power makes a huge difference all around.

Building an ecosystem: For companies or industries with relatively complex products and supply chains, development of a total ecosystem, such as Warsaw, IN has for medical devices, and the Japanese auto plants do here, can overcome some level of production cost disadvantage. How can this notion be better fostered?

Mass Customization and “Quick Response”: It never really panned out in the apparel industry, until Zara started to make it happen in Europe. But you just can’t do build to order anywhere but here, right?

Customers it appears don’t want “Made in America.” But they do want “Made for me.”

What are your thoughts on this discussion of made in the USA? Are there lessons to be learned from companies that can make it work domestically? Can supply chain excellence make a difference? What about “mass customization?” Let us know your thoughts.

What are the opportunities for improving distribution processes in spare parts distribution? How are distributors moving beyond WMS to a broader set of execution capabilities. Watch our experts from Ciber and Red Prairie tackle this issue.

Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're still behind - be patient if your letter has not yet been published.

We're printing more of the excellent letters we received on our piece on "simplifying versus synchronizing your supply chain." That includes our feedback of the week, from Scott Brown of Plexus, who says we hit a "tender spot," and another that says Eli Goldratt's Theory of Constaints is key to solving the dilemma. We also have a catch up letter on "The Less Sorry State of ASNs," Wal-Mart's new strategy of develping less cookie cutter stores, and a letter stemming from a specialize newsletter to supply chain vendors and consultants we thought was worth publishing here on design-build approaches and material handling system integration for warehouse projects.

Boy have you hit a tender spot! I can answer this question because it really is simple after all. The goal of a synchronized supply chain is in fact our goal at Plexus. Are we there yet? No. Are we making significant progress? Absolutely!

But you asked if you can "synchronize by simplifying" and you asked which was a better goal... Our approach is to "simplify through synchronizing" not the other way around. Both are important. I am amazed at the over-thinking that goes on with regard to this topic. People try and swallow the whole elephant rather than break it down into one bite at a time. The fundamental premises of lean and specifically pull based supply chains is one of synchronization to achieve a simpler process. Is it prohibitively software intensive? No. That is unless you try and shoehorn it into traditional ERP/MRP and some APS systems that are based on an entirely different and incompatible model and set of assumptions. We have developed our own home grown tools for supply chain and inventory modeling and optimization with no capital investment at all. Are they robust enough for the long term that remains to be seen. Do they provide capability that is important to the process of change? YES!

The problem is, before you can achieve simplification through synchronization you have to truly understand "Supply Chain Physics" (my thanks to Jack Muckstadt, PhD, Cornell). You have to recognize and come to terms with some fundamental problems and limitations with traditional tools (ERP/MRP/APS) and embrace certain realities. Like, forecasts are next to worthless for most items, so get over that and adopt DDSN (Demand Driven Supply Networks). Finding a new role for forecasts that is less risky. You also have to think about different metrics and priorities.

What we are talking about here is fundamental changes that very, very, very few companies have been able to make. You then also have to export this understanding outside your company to your supply chain partners, suppliers and customers alike.

The result of all this is a capability to design and implement a supply chain model that is tailored to what is appropriate to any business, product, segment, or sub group. With significant improvement in inventory, ROCE, OTD to request dates, and less complexity NOT more!

Scott Brown CPIM, CSCP, CIRM

Manager Supply Chain Analysis & Design

Plexus

More on simplifying vs synchronizing:

It is obvious to me that you are onto something. We see so many companies spending thousands of dollars per seat for computer systems which promise to track, integrate and manage the complexity in their supply chains. There is no pretense of simplification, rather just more and more artificial intelligence to out think the complexities.

As disciples of Eli Goldratt and the Theory of Constraints (TOC,) we also believe that simplification is the course which provides dramatic improvements. Precision in inventory control is not necessary. We strive for “good enough” with our clients who range from a distributor with $30 million in sales to a $7 billion household name consumer products company. The methods we employ work the same way for both.

They increase sales while holding less inventory.

They reduce the difficulties of managing a business, regardless of scale.

Our approach reduces risk for both people and their company.

Occasionally, we fail to reduce operating expenses, however, we always reduce them as a percentage of sales.

Lastly, the processes we put in place are sustainable without us.

The TOC replenishment solution works for single stocking locations as well as for entire supply chains. While, like most solutions today, we do use technology, it is not the core of the solution. The essence is not in new hardware. Yours will do. Nor is it software, although some is needed. I describe the approach as changing the “wetware.” It is stored between the ears. It naturally reprograms itself given the proper environment and inputs.

The only difficulty for companies adopting the TOC way is that many people need their “wetware” modified. And, it is more people than you might first think. While it is not hard, it does take time for the new thinking to become habitual for some. For others, the process is simply to comfort them that the changes to the supply chain will be an improvement for them.

So many changes people have undergone have not turned out to be improvements for them. Yet all improvements are changes. A key change in the “wetware” is to get enthusiastic support for the change. You get that by making things more simple and elegant. People have a natural affinity for clean streamlined easy solutions. This is particularly so when it gets results far in excess of those attained by hard work and brute force. It is why Muhammad Ali became not just the world’s most famous boxer but one of the most recognized people in the world.

Henry F. Camp

Principal

IDEA

On ASNs:

I have been involved with ASN's at multiple levels since their inception. Until there are absolutely reliable methods of automating data capture at the unit level, ASN implementation will continue to be a spotty affair. As a third party provider, the only thing the ASN does for me is allow me to create a pre-receiving process. 90% of all the inbounds I receive still require manual intervention caused by unit or product level errors. Creating 856's is even worse. From our standpoint, it is an opportunity for our customers to insist that we take on an enormous additional labor burden with little or no additional compensation. Making the process accurate and automatic is the key to universal adoption of ASN's in the supply chain.
Kevin Michel
Cowan Logistics

On Wal-Mart's Store Strategy:

I think this makes great sense. While the talk in this article is limited mostly to US, globally too as Wal-mart sets shop in European / Asian countries using a localized strategy will help them reap benefits over a period of time. I believe they should work in a Hub and Spoke model, where the centre is just a direction giving body, and it’s really the spokes – or the local chain of stores which need to figure out the best that suits their region.

This of course needs a good amount of IT spending to help ‘localize’ the centralized data. In fact the data ware house it self should work on this Hub n Spoke model, where data comes in locally and analyzed locally and eventually stored centrally for strategic decisions – ‘local-to-central’ instead of the current ‘central-to-local’ mechanism.

‘Globally Local ‘is the theme that most organizations want to be identified with and Wal–mart for has no reason to be left behind.

Srinivas Sistla

Business Analyst

Manhattan Associates, Inc.

On DC Automation Projects:

Some material handling system integrators have tried to further move toward design-build business models. This they need to be in more control of their customers and also get involved earlier on in the process. They have either built or acquired consulting groups that can be used to create relationships with customers on distribution related problems/projects. This allows them early visibility to material handling projects plus it is a source of income that is more consistent than the ups and downs of the material handling integration business (whose projects are large and not as frequent).

The WMS Integration is just an add-on service for the consulting group. If you identify the need for the system, you try to assure the success of the implementation and that requires continued involvement through the design and implementation phases, plus you can assure that the WMS team and the material handling teams solutions will work together in the end as planned in the beginning.

Kevin Tedford

Independent Consultant

SUPPLY CHAIN TRIVIA

Q. How did workers at Montgomery Ward’s massive catalog warehouse in downtown Chicago, closed in the 1980s, increase their speed of travel for order picking and other tasks